New General Growth CEO has a turnaround model to follow
The new chief executive of General Growth Properties, which filed for the biggest real estate bankruptcy in U.S. history last year, already has a turnaround model to follow: his former company's resurrection of Manassas Mall.
Sandeep Mathrani was retail division president at the mall's owner, Vornado Realty Trust, at a time when Manassas had declined to a flagging center littered with vacancies. In 2001, the Montgomery Ward department store chain had gone out of business and closed its store there. A year later nearly a quarter of the mall's storefronts were empty and its movie theater had closed. Moreover, aggressive suburban shopping development had left surrounding Prince William County saturated with shopping opportunities; it averaged 33 square feet of retail per capita, more than double the national average at the time.
Vornado, with Mathrani at the helm, did something to turn around the mall that only a few owners of enclosed malls at the time had accomplished: It brought in Wal-Mart. To accommodate the retail giant, Vornado moved Sears from a 90,000-square-foot space at the eastern end of the mall to a new 120,000-square-foot space where Montgomery Ward had been on the western end. It then demolished the old Sears space to make space for a 100,000-square-foot Wal-Mart. Despite ongoing struggles for enclosed malls nationwide, Manassas Mall is now 100 percent leased, according to CoStar Group.
At General Growth, which ranks as the country's second largest owner of shopping malls -- it owns or manages 183 regional malls in 43 states -- Mathrani will face many situations akin to the one confronted at Manassas Mall when he officially takes control of the company in January.
Reinvigorating suburban and regional shopping malls is not an easy business, as a demographic return to cities, the revival of outdoor shopping centers and the ongoing economic downturn all combine to mean fewer trips to the mall for many Americans. Research this fall by the brokerage firm Jones Lang LaSalle found that retail vacancies have likely topped out nationwide and that grocery-anchored open air centers would likely be the first to recover. "Malls, on the other hand," researchers wrote, "will require several quarters of back-to-back sales and profitability improvements to make any major strides forward."
Mathrani doesn't think the Northeast is over-retailed. Speaking last week at a forum hosted in the District by Bisnow media company, he said rents in Manhattan had returned to 2007 levels and that General Growth and other companies that own "fortress malls" -- high-end venues with sales of $400 per square foot or more -- needed to press tenants despite the downturn. "If you have the fortress malls, you have to ask for the rents that you could get," he said.
For the non-fortress malls and those in parts of the country that he acknowledges are over-retailed, Mathrani is pushing the kind of ideas that made Manassas Mall a success. More malls "can be reborn as Wal-Mart- or Costco-anchored centers," he said. "I am personally a big believer of bringing grocery and wholesale centers into malls."
He said there is also the chance that General Growth will tear the roof off some its properties, particularly in areas of density and population growth. "Some of these malls will get to the point where they can be de-malled," he said.